New England Biz Law Update
Business is becoming an increasingly global venture. Given that, American businesses with trademarks in the global marketplace must become adept at enforcing their intellectual property rights against infringement around the world. In recent years, many foreign companies have been taking American-owned trademarks and using, or even registering, them on similar or identical products or services in foreign countries.
American businesses might look to the Lanham Act, and to American courts, to protect them from these foreign infringers. But to what extent does the Lanham Act apply to infringement of American trademarks in foreign countries by foreign entities?
On Nov. 4, 2022, the Supreme Court granted certiorari in a case to answer this question. The case is Abitron Austria GmbH v. Hetronic International, Inc., appealed from the 10th U.S. Circuit Court of Appeals. The matter case began in the Western District of Oklahoma where Hetronic, an American company, sued Abitron, a company based in Europe, for trademark infringement.
Abitron initially acted as a contractual distributor in Europe for Hetronic’s radio remote control products. After the contractual relationship ended, Abitron continued to sell reverse-engineered products under Hetronic’s trademarks in Europe. Approximately 97% of Abitron’s sales under the infringing marks were in foreign countries, yet Hetronic sued them under the Lanham Act in the United States.
The district court found Abitron liable for a damages award of $90 million, accounting for Abitron’s global sales, and issued a worldwide injunction against using Hetronic’s trademarks. On appeal, the Tenth Circuit affirmed the damages award, but narrowed the injunction to apply only in countries where Hetronic actually markets or sells its products.
Abitron then petitioned to the Supreme Court.
The Supreme Court had previously considered the extraterritorial reach of the Lanham Act back in 1952 in the case of Steele v. Bulova Watch Co. In that case, Steele, an American citizen unrelated to the Bulova Watch Co., began selling “Bulova” branded watches in Mexico after having noticed that the Bulova company had not secured trademark rights to the name in Mexico.
The Supreme Court found that Steele’s operations and its effects were not confined within the territorial limits of Mexico and that it had affected United States commerce enough for the Lanham Act to apply.
Notably, the defendant in Steele was an American citizen and thus the court did not determine the reach of the Lanham Act as it applied to foreign entities. Thus, while the court in Steele established that the Lanham Act could have an extraterritorial reach, it did not answer how far such reach could extend.
After Steele, the circuit courts were split on how they applied the Lanham Act extraterritorially in cases of infringement. Different courts came up with different analyses. The Tenth Circuit in Hetronic came up with the following test: “First, courts should determine whether the defendant is a U.S. citizen. Second, when the defendant is not a U.S. citizen, courts should assess whether the defendant’s conduct had a substantial effect on U.S. commerce. Third, only if the plaintiff has satisfied the substantial-effects test, courts should consider whether extraterritorial application of the Lanham Act would create a conflict with trademark rights established under foreign law.”
This test is similar to the one adopted by the First Circuit and is the one the Supreme Court will be taking a close look at. However, most circuits, including the Fourth, Fifth, Eleventh and Federal, have adopted a test set forth by the Second Circuit in Vanity Fair Mills, Inc. v. T. Eaton Co.
That test has the same factors as the one adopted in Hetronic, but, unlike that test, no one factor is determinative (i.e. American citizenship of the defendant will not automatically trigger Lanham Act protection). Furthermore, the Ninth Circuit has adopted an entirely different test which did not require that the effects on American commerce be substantial.
The case before the Supreme Court presents the following question: “Whether the court of appeals erred in applying the Lanham Act extraterritorially to petitioners’ foreign sales, including purely foreign sales that never reached the United States or confused U.S. consumers.”
Here, the court faces a difficult decision. On the one hand, as the Lanham Act specifically applies to United States commerce, it makes sense that the Act would not apply where there are no sales or confusion within the United States. And such extraterritorial reach runs the risk of conflicting with foreign trademark laws.
On the other hand, foreign infringement still affects United States commerce in the sense that it harms an American business. And an adverse ruling would put an extra strain on those harmed American businesses by forcing them to enforce their rights in every other country where the infringement occurred, incurring more expenses.
The Supreme Court has not yet set a date for argument in this case, but has placed it in the 2022-23 Term. American trademark owners and practitioners anxiously await the Court’s decision.
Thomas Sica is an associate with the law firm of Heslin Rothenberg Farley & Mesiti P.C. His experience includes litigation work, trademark prosecution, and general IP counseling.
